Robert

A November Surprise in Student Loans

A few weeks ago, I co-authored a piece in The Chronicle of Higher Education on the federal government’s authority to relax income-based repayment requirements for student loans. To summarize the proposal, the federal government was granted the authority (starting in 2014) to allow students to repay student loans using only ten percent of their discretionary income for 20 years, down from 15 percent for 25 years. Our argument in the Chronicle piece is that the program represents an enormous subsidy for students attending expensive colleges and particularly professional schools. We were not the only people with those concerns; the left-leaning New America Foundation put out a similar set of concerns.

I was very surprised to learn yesterday that the Obama Administration published the final regulations for the new income-based repayment program (called “Pay as You Earn” or PAYE) in the Federal Register, which will suddenly take effect much sooner than 2014 and apparently no later than July 1, 2013. There appears to be no regulatory authority for speeding up the changes, other than the federal requirement that regulations be published by November 1 in order to take effect on July 1 of the following year. These regulations continue a disturbing trend of this administration ignoring Congressionally mandated timelines. It is my sincere hope that someone will ask the Department of Education for clarification as to how speeding up implementation is legal, especially when Congress did not agree to that timeline and there is a cost impact (more on that later).

Substantial legal issues aside, it appears that the Department of Education did not seriously consider the moral hazard concerns of people taking out more debt simply because they will not have to repay it. Buried on page 28 of the 61-page regulation document is the following nugget:

“Income-based repayment options may encourage higher borrowing and potentially introduce an unintended moral hazard, especially for borrowers enrolled at schools with high tuitions and with low expected income streams. Some commenters disagreed with the inclusion of this moral hazard statement, noting that the aspect of more generous income-based repayment plans causing increased borrowing has not been established. The Department has not found any definitive studies on the matter but since some analysts, academics, and others have suggested the possibility of this inducement effect, we wanted to address it to ensure comprehensive coverage of this issue.”

The Department of Education then never addresses the topic in the rest of the regulation document, instead focusing on the benefits for borrowers with more modest amounts of debt and household incomes of less than $60,000 per year. I side with Jason Delisle and the New America policy folks, who still note that moral hazard is a substantial concern.

The cost estimates seem way too good to be true, which is often the case in implementing new federal programs. The Department of Education (on p. 35 of the regulations) estimates that the cost will be only $2.1 billion over the next ten years, which seems to be an incredibly low number. Assuming roughly $250 million per year in additional costs over the peak years of the budget window (the last few years should not be included because they don’t include the full cohort costs) only covers $50,000 in loan forgiveness for 5,000 students. There are a lot more than 5,000 law and medical school graduates who could benefit under this program, yet it is unclear whether the Department of Education actually modeled professional school students (they mention on page 34 that graduate students were modeled, but they have much less debt on average).

Despite this change being a substantial shift in student loan policy, the education community and the media don’t seem to be too interested in the substantial cost shifting. The Chronicle had a nice article (subscription required) on the moral hazard regarding the program and Inside Higher Ed mentioned the release of the final rules, but completely missed the point. The conservative Daily Caller also mentioned the changes, but doesn’t get into the questionable legal foundation of advancing the policy before 2014 or the issue of who benefits.

It is easy to link the release of these regulations to electoral politics as usual, and I am certainly skeptical of what happens this time of year. However, given the lack of media coverage and the fact that it all hasn’t been positive, it appears that the Department of Education wanted to release the rules to have them take effect before receiving more public scrutiny. Hopefully, there will be a successful lawsuit delaying the rules on the grounds of the Obama Administration overstepping its legal authority to have the rules take effect in 2013 instead of 2014—and this will give researchers and policymakers a chance to rewrite the rules to target aid to those who truly need it instead of subsidizing expensive professional education programs.

Need-Based Financial Aid and College Persistence: Experimental Evidence from Wisconsin

This afternoon, the Institute for Research on Poverty at the University of Wisconsin-Madison released our new paper on the effects of the Wisconsin Scholars Grant on Pell Grant recipients attending public universities in the state of Wisconsin. In short, we find that randomly assigning some students additional financial aid yields modest positive effects on college retention rates, but getting to that result has been extremely complicated.

Read the paper here and let me know what you think! We have submitted this paper to a journal and hope to get good news in the next couple months.

Using Input-Adjusted Measures to Estimate College Performance

I have been privileged to work with HCM Strategists over the past two years on a Gates Foundation-funded project to explore how to use input-adjusted measures to estimate a college’s performance. Although the terminology sounds fancy, the basic goal of the project is to figure out better ways to measure whether a college does a good job educating the types of students that it actually enrolls. It doesn’t make any sense to measure a highly selective and well-resourced flagship university against an open-access commuter college; doing so is akin to comparing my ability to run a marathon with that of an elite professional athlete. Just like me finishing a marathon is a much more substantial accomplishment, getting a first-generation student with modest academic preparation to graduate is a much bigger deal than someone whom everyone expected to race through their coursework with ease.

The seven-paper project was officially unveiled in Washington on Friday, and I was able to make it out there for the release. My paper (joint work with Doug Harris) is essentially a policymaker’s version of our academic paper on the pitfalls of popular rankings. It’s worth a read if you want to find out more about my research beyond the Washington Monthly rankings. Additional media coverage can be found in The Chronicle of Higher Education and Inside Higher Ed.

As a side note, it’s pretty neat that the Inside Higher Ed article links to the “authors” page of the project’s website (which includes my bio and information) under the term “prominent scholars.” I know I’m by no means a prominent scholar, but maybe some of that will rub off the others via association.

Improving Income-Based Repayment

As regular readers of this blog know, I am keenly interested in exploring the cost-effectiveness of policies affecting the world of education. This week, the New America Foundation released a report detailing changes made by Congress and the Obama Administration to income-based repayment. Income-based repayment allows people to pay back their student loans by paying a fixed percentage of their income over a long period of time; this differs from traditional loan payments in the sense that loan payments can do down if income is low and up if income is high.

The recent actions of the good folks in Washington resulted in a system that substantially reduces the payments for people who take on a lot of debt (generally those who attend very expensive colleges or get professional degrees). Giving heavy subsidies to high-income, well-educated people isn’t the most cost-effective strategy and encourages the cost of higher education to rise even higher.

I combined with Sara Goldrick-Rab, my friendly neighborhood dissertation chair and someone who occupies a distinctly different political space from me, to write a piece for The Chronicle of Higher Education on how to improve income-based repayment. Take a read and let me know what you think. The New America people are certainly interested in considering changes to their proposal, and so am I.

As an aside, it always feels nice to get some publicity for your thoughts, especially while navigating the job market. Stay tuned for my next endeavor…coming soon!

Is College Cost Certainty a Possibility?

There are only a few certainties in life, such as death, taxes, and Murphy’s Law holding true at the most inopportune times. For nearly everyone, however, knowing the cost of college more than a few months in advance is definitely not one of those certainties. But given the high sticker price of attending college (which is not tremendously useful for most people), what can be done to provide cost certainty for students and their families over the course of several years?

As a part of a nifty series of essays on possible ways to overhaul the college experience, Beckie Supiano of The Chronicle of Higher Education takes a quick look at what has been done to provide better cost information. She focuses on a useful goal—being able to provide students with the net price of education (tuition less grant aid) over the course of several years. While this is a great idea in theory, it quickly runs into several problems in practice:

(1) Colleges only control a fraction of grant aid, especially for financially needy students. Most federal need-based grants require that a student be eligible to receive the Pell Grant; if family income rises by a small amount, the loss of aid can be devastating. This also makes forecasting net price nearly impossible for middle-income families.

(2) Most colleges cannot forecast their available resources several years in advance. Public colleges are at the whims of economic circumstances and the state government, while many private colleges rely on a combination on endowment revenue and rear ends in seats in order to make ends meet.

(3) Colleges, like most of us out there, tend to be what economists call risk-averse. In English, that means that we don’t like being exposed to uncertainty. Students and their families currently bear the brunt of the uncertainty with respect to higher education pricing, but locking in a price regardless of the economic circumstances would shift that risk to the college. Most colleges would likely set a very high initial price in order to account for this uncertainty.

A small number of states have experimented with guaranteed tuition plans through prepaid tuition programs, which helps provide at least some certainty (although they do not guarantee set amounts of financial aid). Alabama’s program ran out of money during the financial crisis and is currently closed to new enrollment while facing legal challenges. A similar program in Illinois is also drastically underfunded, which is a common theme in the Land of Lincoln.

The article makes a key mistake in discussing cost certainty—it ignores the fact that known cost increases still represent cost certainty. If a college guarantees that tuition will go up by five percent per year for the next five years, students and parents can still have an idea of what college will cost in the future. The State University of New York system took a similar path in 2011, allowing each university in the system to raise tuition by up to $300 per year for five years. This proposal is quite useful as it puts increases in dollar terms, which are easier to understand than percentages.

I am interested in providing more information on cost certainty, but my research focuses on the financial aid side of the cost equation instead of the tuition side. I am currently working on two studies examining whether students and their families can receive earlier notifications of their financial aid, with results hopefully to come in the next few months. It is far from perfect, but it does help provide a little more information in an uncertain world.

Overvaluing Harvard

Many parents went to send their children to what they consider to be the best colleges and universities. For quite a few of these families, this means that Junior should go to fair Harvard (after all, it’s the top-rated university by U.S. News and World Report). But few families are willing to go as far as Gerald and Lily Chow of Hong Kong.

An article in the Boston Globe tells the sad saga of the Chow family and how they got duped out of $2.2 million by a former Harvard professor who claimed to be able to get the family’s two sons into the university. The family filed suit against defendant Mark Zimmy’s company after claiming fraud after their children did not get accepted there (although they did get into other elite colleges). Zimmy’s website is still active and targets Chinese students, many of whom have little knowledge of the American educational system. Needless to say, I am interested in how this case proceeds through the legal system.

I am pretty familiar with the academic literature studying the returns to attending a prestigious college. Although there are possibly some additional benefits of attending a more prestigious college to students from disadvantaged backgrounds, the literature is quite clear that the typical student should not expect to benefit by over one million dollars for attending Harvard compared to a slightly less prestigious college. It’s safe to say that the Chow family was likely going to waste their money, even if Mr. Zimmy was able to get their children into Harvard.

The Top of the Ninth

This time of year, my thoughts turn fairly often to baseball. This is especially true this year with my beloved St. Louis Cardinals in the playoffs. The familiar sounds of the game’s great announcers are the background of my summer, and are particularly well-suited for listening while working. Today’s lengthy playoff games (three and a half hours for a regular nine-inning game) made me think of George Carlin’s famous dialogue on why he preferred baseball over football. The best part of the dialogue is the following:

“Baseball has no time limit: we don’t know when it’s gonna end – might have extra innings.
Football is rigidly timed, and it will end even if we’ve got to go to sudden death.”

As I work well into an October evening filled with tightly played postseason games, this quote makes me think about graduate school. Enrolling in a PhD program is a lot like playing baseball—there is no rigidly enforced time limit (at least since the end of curfews about three decades ago) and extra innings are unlimited in theory. Few other sports, with the exception of playoff hockey and cricket, have such indeterminate endings.

My journey through graduate school has often felt like an exciting playoff baseball game. Through my five-plus years in graduate school, both in economics and education policy, I have experienced the highest of highs (incredible research opportunities and working with amazing people) and the lowest of lows (scoring below the posted minimum score on an exam). But days like today make me feel like I’m entering the top of the ninth inning of graduate school with a comfortable lead.

Today marked a very exciting day in my time in graduate school. I have spent at least three years working with a research team on a paper examining the effects of a randomly assigned need-based grant program here in Wisconsin. We finally finished the umpteenth rewrite of the paper and sent it off to a very good journal. The paper should be posted on our study’s website in the next few days, but the main punchline is that financial aid does have modest positive effects on students’ persistence through college. To come up with this estimate, we used a pretty nifty econometric strategy of instrumental variables with treatment-by-site interactions; for baseball fans, think of it as advanced sabermetrics.

Additionally, I have been making good progress in applying for assistant professor positions in both education and public policy schools. In working on my application materials, I realize how much I have learned and grown in my time in graduate school. Five years ago, I couldn’t have imagined what I would be doing today, which is pretty amazing. I won’t know where I will be next year for several months as I approach free agency this spring, but I am looking forward to getting called up to the academic big leagues.

Majoring in Football?

Unlike some in the higher education world, I am often a fan of big-time college athletics. They do provide important benefits to both the university and the broader community, such as social cohesion, increased levels of public support, and (under the right circumstances) economic development. However, my support is limited to when the following conditions are met:

(1) Athletics must interfere with academics as little as possible for the broader campus community. I understand that athletes’ schedules will be difficult to maintain, but let’s can the nuttiness of weekday evening football games. Other sports can have evening events during the week, but they don’t shut down campus like football does.

(2) Students must not be forced to provide massive subsidies for athletics programs, as is often the case at non-BCS (think directional state universities with Division I athletics) colleges. Here in Big Ten land, passionate alumni bases giving oodles of money to athletic departments and the successful Big Ten Network have reduced athletic subsidies to a minimum.

(3) Athletes must care about academics as much as other students (which may not necessarily be that much). Here at Wisconsin, I’ve interacted with a fair number of athletes and nearly all of the experiences have been with students who clearly appreciate the value of a free education and take their academics seriously.

I was extremely disappointed to learn about the case of Ohio State third-string freshman quarterback Cardale Jones, who clearly violated condition (3) above. He unwisely tweeted the following statement last Friday:

“”Why should we have to go to class if we came here to play FOOTBALL, we ain’t come to play SCHOOL classes are POINTLESS”

Jones was suspended for last Saturday’s game against Nebraska, in which the Huskers were shucked by the score of 63-38. Although Jones would have been unlikely to play, at least Ohio State took some action.

Individuals like Jones are likely in college in the first place because there is not a serious minor league system in football, unlike in baseball and hockey. But given the fact that he is playing at a state-supported university of higher education, he needs to keep his thoughts to himself. Plenty of people in college don’t care much about classes, but they don’t have the same public stage as a Buckeye football player.

As a side note, the comments on the Inside Higher Ed note on this situation are worth a read.

New Data on the Returns to College

Many people love to hate college rankings, but they have traditionally been one of the most easily digestible sources of information about institutions of higher education. We know very little about the outcomes of students who attend a particular college over time, so we tend to rely on simplistic measures such as graduation rates or measures of prestige. It is difficult to follow and assess the outcomes of students once they leave a given college for multiple reasons:

(1) A substantial percentage of students transfer colleges at least once. A recent report estimated that about one-third of students who enrolled in fall 2006 were enrolled elsewhere sometime in the next five years. The growth of the National Student Clearinghouse has made following students easier, but it is difficult to figure out how to split the credit for successful outcomes across the colleges that a given student attends.

(2) While the group of students to be assessed (everyone!) sounds straightforward, most of the push has been to focus on the outcomes of graduates. This makes for a reasonable comparison group across colleges, but colleges have different graduation rates. It makes sense to focus on all students who entered a college, but this would lower the returns to college (and doesn’t fit well with selective colleges, where everyone is assumed to graduate).

(3) Some people choose to postpone entry into the full-time labor market, whether for good reasons (such as starting a family) or for more dubious reasons (such as getting a master’s degree and working on a PhD). Given the lack of a federal data system, other students will not be observed if they move out-of-state to work.

Even with all of the limitations of measuring student outcomes once they leave college, I am heartened to see states starting to track the labor market outcomes of students who attended public colleges and stay in-state. This requires the merging of two data systems that don’t always exist in some states and don’t talk to each other in others—state higher education data systems and unemployment insurance (UI) records. Two states, Arkansas and Tennessee, just launched websites with labor market information for graduates from their public institutions of higher education. While the sample included is far from perfect, it still provides useful data to many students, families, and policymakers.

Not surprisingly, many in academia are worried about these new measures, as they prioritize one of the purposes of higher education (employment) at the expense of other important purposes (such as critical thinking and higher-order learning). The comments on this recent Chronicle of Higher Education article are worth a read. I am concerned about policymakers solely relying on these imperfect measures of student outcomes, but stakeholders should be able to have more information about the effectiveness of colleges on as many outcomes as possible.

Author: Robert